Best Practice in Model Risk Management Frameworks for Banks

Article

In an era where models drive critical banking operations, they also pose unique risks. This article explores the foundations of Model Risk Management (MRM), focusing on the tools and strategies banks use to safeguard their operations and meet regulatory expectations. Dive into a discussion on model identification, tiering, and appetite as keystones of an effective MRM framework.

Nov 25, 2024

Givi Kupatadze, Head of Model Risk, TBC Bank

Best Practice in Model Risk Management Frameworks for Banks

The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization

A robust Model Risk Management framework requires clear policies, processes, and roles to address risks and comply with regulatory standards.
Differentiating models from other quantitative methods hinges on inherent uncertainty in model outcomes and their role in decision-making.
Model risk tiering optimizes resource allocation and informs risk appetite by categorizing models based on materiality and riskiness.
A tiered model risk appetite framework ensures banks can monitor and mitigate risks systematically as thresholds are breached.